The Royal Swedish Academy of Sciences has bestowed the prestigious 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, commonly known as the Nobel Prize in Economics, upon Joel Mokyr, Philippe Aghion, and Peter Howitt. Their collective research, which delves into the factors and connections influencing long-term economic growth, has been recognized for its profound insights.
While their scholarly pursuits intersect on various themes, this year’s award particularly highlights the recognition of their diverse methodological approaches. Joel Mokyr, a distinguished economic historian, offers a deep dive into the intricacies and transformations of economic history. In parallel, Philippe Aghion and Peter Howitt contribute a more quantitative perspective to understanding the mechanisms of growth.
At the heart of Joel Mokyr’s research lies the historical trajectory of innovation. He observes that innovation throughout human history, even before the Industrial Revolution, often emerged sporadically and in isolated instances. Different historical periods saw advancements in tools, techniques, and knowledge, but these bursts of innovation tended to fade. The Industrial Revolution marked a turning point, leading to sustained and accelerating innovation.
A key distinction between innovation before and after the Industrial Revolution, according to Mokyr, is the underlying theoretical understanding. He describes a world where engineering advanced without a deep grasp of mechanics, iron production thrived without metallurgy science, agriculture prospered without soil science, and even medicine progressed without microbiology or immunology. This shift underscores the growing integration of science and technology.
Mokyr pinpoints three crucial elements for sustained innovation: the symbiotic evolution of science and technology, a robust community of ‘tinkerers’ who can translate theoretical knowledge into practical applications, and a societal readiness for change.
He further distinguishes between “propositional knowledge” (knowledge about the physical world, which can include proto-scientific understanding) and “prescriptive knowledge.” Mokyr emphasizes that the dynamic interplay between these two forms of knowledge is fundamental to lasting innovation.
The second pillar of Mokyr’s framework highlights the importance of individuals—often called “tinkerers,” “tweakers,” or “implementers”—who bridge the divide between theoretical concepts and practical implementation. He notes that highly innovative societies foster collaboration between educated individuals and skilled craftspeople.
Finally, Mokyr acknowledges that innovation often faces resistance. This opposition can stem from individuals who stand to lose from change, ideological conflicts, or simply the inertia of habit and fear of the unknown. Therefore, successful innovation necessitates an institutional framework that facilitates negotiation and compensation, with historical institutions like parliaments playing a role in mitigating resistance.
It is on this latter point that the work of Philippe Aghion and Peter Howitt becomes particularly significant. They explore the complexities of innovation, recognizing that it is not always a universally beneficial or neutral process.
While Joseph Schumpeter coined the term ‘creative destruction,’ Aghion and Howitt have expanded upon this concept by integrating it into formal theoretical models. Their work challenged earlier endogenous growth models that often predicted a ‘balanced growth path’ and, counterintuitively, suggested that monopoly power might be necessary for innovation.
Aghion and Howitt’s research indicates that incumbents may only partially benefit from innovation, thus reducing their incentive to innovate compared to new entrants. Furthermore, contrary to Schumpeter’s concern that creative destruction could destabilize market economies, their findings suggest that this process can be sustained under specific conditions.
In essence, this year’s Nobel laureates offer a nuanced understanding of the prerequisites for innovation. As Mokyr aptly puts it in his book, “The Gifts of Athena – Historical Origins of the Knowledge Economy,” while technology empowers humanity, its ultimate purpose and application remain indeterminate. The 20th century, he notes, has shown that our capacity for negative traits has not diminished despite increased technological power.
(Avinash Tripathi is an economics faculty working for the Centre for the Study of Indian Economy, Azim Premji University)